For a man still on the sunnier end of middle age, Matt Sutcliffe packs a lot of experience. With a PhD in mining engineering and a decade as a mining analyst and corporate financier with some of the biggest brokerages in the City of London, he might be expected to pick and choose his assets carefully when launching his first company.
Indeed that appears to be the case. The story ? or perhaps Sutcliffe?s pedigree ? certainly impressed the City when Alexander Mining listed in April 2005, as he handed round the hat for £12m and finished with £20m. Given that Sutcliffe was associated with the AIM listings of such notables as Aquarius, Brancote and Dwyka Diamonds, perhaps the enthusiasm wasn?t a total surprise, but it speaks well of the respect with which the man is held amongst his contemporaries.
Alexander?s approach to mineral properties is much like a card game. Properties are picked up, turned over and either kept or laid back down as quickly and efficiently as possible. Earn-in deals are back-end loaded to minimise costs before decisions need to be made. So far Alexander has handed back two properties, mothballed a third and picked up some extra land adjoining existing tenements. Pretty speedy for two years? work. Core properties are now defined and are quite enough to fully occupy Management and Directors. Speaking of which, Sutcliffe has brought together an impressive-looking team behind him.
Argentina.
Alexander?s flagship project is the Leon project in Salta Province, NW Argentina. Leon is a sediment-hosted copper/silver deposit whose two limbs are labelled El Plomo (eastern) and El Cobre.(western). These hold a combined JORC resource of 6.43 MT at an average of 0.64% copper and 17.9/t silver, 80% of which is indicated and 20% inferred. The smaller of the two limbs is significantly richer in copper.
At first glance the modest size and rock value of $58/tonne (to which silver contributes $8) look inadequate to make Leon a stand-alone mine. The second glance may turn out to count more, as Leon does have advantages. It comprises of two hills either side of a valley and virtually no pre-stripping is required, which should make it considerably easier and cheaper to mine than average. Statements emanating from Piccadilly HQ make it crystal clear that the company fully intends to merit the name Alexander Mining, not Alexander Exploration. It has already trialled small-scale electro-winning and produced copper cathode.
Local infrastructure is good. Paved national highways run to within 18km the main Leon project site and good quality gravel roads lead the last leg. Local authorities have indicated that cheap power can be supplied, and water is available from both underground sources and the nearby Juramento River.
A feasibility study is nearing completion, but the real interest is now the hunt to define similar resources elsewhere in the Salta basin, where Alexander has a huge land holding of 145,000 hectares ? about two thirds the size of County Durham. A number of outcropping satellite deposits have been located, first amongst which is Arbol Solo, 23km due south of Leon. Early indications are that a similar sized resource exists there. If so, it could dramatically enhance the economics of a mine down the road at Leon.
Elsewhere in Argentina, the Trinidad silver project didn?t make the grade and has been jettisoned, while the Rachaite copper/gold prospect was considered too risky to tackle alone. Sutcliffe is hoping a joint venture partner will help carry it forward, but until then Rachaite is mothballed.
Peru
Since the Sulcha project was relinquished, Molinetes is their sole Peruvian tenement, but a very interesting prospect it looks indeed. It lies in a fairly remote area of North West Peru where little or no exploration has ever been attempted. However, local artisanal miners are busy chiselling out quartz veins hosting bonanza gold grades to a depth of about twenty metres.
The key event came in March with the issuing of a Supreme Decree authorising 100%foreign ownership of the project, arranged in advance by the conditional acquisition of a local Peruvian company. Alexander?s field geologists reckon Molinetes hosts a large scale epithermal/shear zone system with extensive gold veins over a six square kilometre area.
At the moment artisanal workings are restricted to the top twenty metres. This leaves the intriguing possibility that there may be a very large sulphide deposit at depth, as well as a substantial low grade unmined oxide halo. First pass exploration, involving geological mapping, soil and rock chip sampling and systematic grid drilling has already started.
Political and Country Risk.
The long dark shadow of the Esquel debacle still hangs over Chubut and tarnishes Argentina?s reputation as a destination for mining investment, but Salta Province is one of the most mining friendly of Argentina?s 23 provinces. Political risk should therefore be quite low.
Very importantly, Alexander cottoned on early to the need for a ?social license to operate? and virtue is now reaping the reward of excellent community relations both in Salta and in Peru. Molinetes? artisanal miners are perhaps the greatest potential banana skin. Much tact and diplomacy are needed, but the provisional plan is to employ them all.
Valuation and Funding.
With a handsome £12m of its original cash still in the treasury, Alexander has an enterprise value of roughly £16m at present prices. This buys $350m worth of metal in its Leon JORC resource. Value this at 5% in-ground and we get around £9m. Assign a generous 10% in-ground value and the sums come to £18m. The Peruvian Molinetes property is impossible to value sensibly at this stage.
Valuation metrics should change upon production of the Leon feasibility study, assuming this is positive, at which stage a DCF model should be applicable.
2006 exploration spend came to £3.6m. The feasibility study company will consume more, and Alexander?s Board did take the precaution of assigning itself permission to allot a further tranche of shares worth roughly £6.7m. Sutcliffe hopes to avoid a return to market this side of mine construction.
Verdict.
At today?s prices Alexander still looks very speculative, pending the Leon feasibility, where viability is likely to be very sensitive to the copper price. However, Alexander is blessed with determined management with a can-do mentality. As an aside, the last Annual Report was exemplary in its detail and transparency ? if only other AIM-listed companies were equally conscientious.
News on the feasibility study should be out by month-end. It should be an interesting read.
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